Crypto Corner: Week Summary 15 March 2021

Region: Europe
Mar 19, 2021, 3:00:00 PM Published By Yves Renno

The Bitcoin price reached a new all-time-high at $61,781 (source: Bitstamp) last Saturday. The market capitalisation’s dominance of the first cryptocurrency tried to catch up with its peers. The Bitcoin dominance index calculated by Tradingview reached its highest level since February 9th, pushed by profit takers adn speculators, swapping their alternative cryptocurrencies for BTCs. Meanwhile, the institutions’ interest is settling. The BTC holdings of the Grayscale fund have been stable since February 18th, staying near 655,000 BTCs. The increased involvement this week of major investment banks and wealth managers doesn’t change the trend. CNBC reported on Wednesday that Morgan Stanley will give its wealthy clients (above $2mil wealth) access to three Bitcoin funds in April, including two offered by Galaxy Digital. We also mentioned last week that the JP Morgan cryptocurrency note will be priced at the end of this month.

The third stimulus package of $1.9 trillion enacted by the Biden Administration failed so far to boost the BTC/USD pair. The $1,400 checks complete the $600 checks decided by the previous administration in December. As such, the market might have already factored in their potential impact. Liquidity injections through helicopter money boosted the Equity and cryptocurrency markets in the past. As reported by Yahoo, Mizuho Securities estimated that “10% of the direct stimulus checks - or nearly $40 billion - may be used to purchase Bitcoin and stocks’’. Direct deposits have already credited the first batch of households accounts last Friday. More direct deposits and checks will be distributed over the next few weeks.

Mizuho’s survey is certainly bullish for the cryptocurrency markets. But institution-grade investors are now looking further ahead. They are expecting a recovery from the health crisis and betting on the inflation rate to rise near the 2% Fed’s target. The Fed’s discussions are focused on the conditions that would trigger a shift in its monetary policy. It could take years for the public’s confidence in the economy to return. It could also take years for the Fed to start tightening its policy. Regardless, expectations alone of a tight monetary policy in the distant future are keeping the Bitcoin price down. The 10-y inflation-indexed treasury is now quoting at -0.67, trying to breach the -0.6 level that’s already been reached on Feb 25th.

With all major payment solutions and fintechs expanding or growing their activities in the US, buying cryptocurrencies has never been so easy for the US households receiving helicopter money this week. Paypal paved the way for cryptocurrency payments in the US for individuals or businesses alike, but others are following. VISA’s CEO Al Kelly mentioned in a podcast three days ago that the company is “committed to help digitise millions of small businesses in the next few years”. Cryptocurrencies could naturally thrive in such a wide digitised ecosystem, and VISA is working now with 35 FIAT-backed companies (including Wirex) to enable FIAT/cryptocurrencies exchanges worldwide…

As reported by CryptoQuant, the “All exchanges Bitcoin inflow” peaked on March 14th, suggesting a higher supply of Bitcoin that drove its price back below the $60,000 level. If no new material events come to shake the market again, including new legislation that would favour the issuance of the first US ETF, or a new large tech player entering the crypto-economy, there seems to be very little fundamental support for a new rally in the short-term. 

On the derivatives side, the options open interest has climbed and remained above the $14bio level since Tuesday. Furthermore, the June future basis is quoting at a high 25% equivalent rate (annualised). Both metrics suggest a high borrow rate and a high leverage in the market, indicating that this week’s price rally is still more speculative than sound.

December 21st CME future versus spot quoting near a 20% equivalent rate (annualised)